By DON PHILLIPS

Published: December 6, 2006

The Bush administration withdrew a plan on Tuesday to give European airlines more freedom to invest in American airlines and to participate in management decisions, bowing to opposition expected to deepen in a Democratic-controlled Congress.

The decision deals a blow to greater cooperation between United States and European airlines. Europe had made the investor rule a condition for putting in place the so-called open skies treaty with the United States, which is needed to allow airlines based in Europe or the United States to fly with little or no restrictions to each other's territories. Such flights are now often subject to government-to-government negotiations.

The open skies treaty, which has been agreed to by the United States and the European Union, is far more important on both sides of the Atlantic than the separate foreign ownership rule. Europe could easily allow the open skies treaty to take effect at any time, but it has made such an issue of tying the two together that it now faces embarrassment if it appears to give in.

Yet Tuesday's development is probably not the end of the negotiations that govern international air accords, said Mary Peters, the transportation secretary, whose agency issued the ruling.

''Today's announcement in no way deters us from our goal of giving U.S. airlines complete access to the world's capital markets,'' Ms. Peters said. She added that the government ''was eager to work with Congress and the aviation industry to find new ways to make it easier for airlines to raise money from global investors.''

For years, the American airline industry has had billions of dollars of losses and has been in need of outside investment. But it has shown signs of coming out of a slump, with some carriers, like United Airlines, making small profits.

The European transport commissioner, Jacques Barrot, told the Associated Press that the European Union was disappointed with the decision, saying that scrapping the foreign ownership rule had been an essential element in concluding a deal on the separate open skies issue.

Nonetheless, Mr. Barrot said negotiators planned to meet again shortly.

The foreign ownership rules would have changed a series of administrative decisions that have been interpreted to strictly limit the ability of any European airline investor to participate in the management of an American airline. European airlines said the rules were so strict that a United States citizen with a single share of stock would have a greater say in airline management than the European airline investor.

The rules have led European airlines to sell their interests in American carriers. Even if the Bush administration had approved the proposed rules, foreigners would still have been limited to 25 percent of voting equity in United States airlines.

Aviation specialists say Europe will probably approve the open skies accord in 2007, even if there is no action on the foreign ownership rules, because Europe stands to gain even more than the United States.

The foreign ownership proposal had been strongly opposed by influential members of Congress, unions and several major airlines led by Continental. British Airways was also cool to the idea because it would have allowed the open skies rules to go into effect, giving other airlines greater access to Heathrow Airport, which it dominates.

Representative James Oberstar, a Democrat from Minnesota who is expected to become chairman of the House Transportation and Infrastructure Committee, commended Ms. Peters for her decision. Mr. Oberstar said Ms. Peters chose to do the right thing in the face of strong pressure from the administration and from the European Union.

Mr. Oberstar did not say whether he would work with the Bush administration to develop an investment rule that would be acceptable to Congress.

The agreement on investment would bring together the two largest aviation markets in the world, which account for 60 percent of global traffic, and would allow European and American airlines to fly wherever they wanted and to charge whatever they wanted on trans-Atlantic flights.